Why Building a Business Solely on Etsy is a Bad Idea (And What to Do Instead)

$5,000.

That's how much I earned from a $0.12 investment the four months after starting an Esty shop.

Sounds good, right?

For newbies, it's often a battle between starting an Etsy shop or building their own website. Owning an ecommerce website gives you more control over the entire website─you can add your own design, control the marketing, SEO, and have few customer distractions to your customers: you can help them stay focused on the products on your page.

However, Etsy is known as a wonderful place for entrepreneurs, too. It's beginner-friendly, and Etsy had around 45.7 million active buyers in 2019 which gives your products a wider audience. What's not to like?

Add in the fact that I can earn $5,000 with just a couple of Etsy listings. As a brand new seller, maybe starting an Etsy shop is the secret sauce for making money online, right?

Well, not so fast.

Starting an Etsy Shop is Not The Answer to Building Your Dream Business

At least not long term.

Many people read my article The Ultimate Guide to Selling on Etsy and mistakenly think that Etsy may just be the answer to the tugging on their entrepreneurial spirit. After all, it has all these things going for it:

• It's super simple to set up.
• You don't need to have a techie bone in your body to get an Etsy shop running.
• Products remove the risk of putting yourself out there and offering a service.
• You only need a prototype at first.
• Etsy has built-in traffic and fans.
• It's relatively cheap to get up and running.

But with all of those great things going for it, there are limiting factors as well.

After starting an Etsy shop and you’ve begun to make sales or even grown it past $1,000/month, the limitations of Etsy may begin to weigh on you. 

But don't worry. I won't leave you hanging. I'll tell you how to fix them so you can sell on Etsy successfully while also giving yourself the freedom and flexibility you crave from your 9-5 (or even just more creative license!). 

Let’s take a look at the disadvantages of solely relying on an Etsy shop for your business. You can jump in to  the common limitations you’ll encounter here:

• The Low Average Price-Point of Products
• The Insane Amount of Labour
• You're Limited to Etsy Clients
• Etsy Stores are “Less Professional”
• Etsy Pockets a Portion of Your Profit
• You Don't Own Your Land
• Etsy is a Press-Free Zone
• You Lose Sales When Relying Only on Etsy
• Difficulty Up-Selling
• Etsy Makes You Turn Your Back on Marketing
• You Can't Communicate With Buyers After The Sale

1. The Low Average Price-Point of Products

Etsy is a very competitive marketplace.

This is good news when you're just starting out. 

After all, Etsy has an incredibly engaged fan-following, meaning that if you're first starting out with an online business, you won't have to spend so much time and effort marketing! 

But this can be limiting as you grow your shop.

There were around 2.1 million active sellers on Etsy in 2019[*]. For each business niche, there are hundreds, of sellers competing with one another for each product. 

This drives your product’s prices down.

The average salary[*] of American workers in the U.S. in 2020 is around $957 per week or $49,764 per year for a 52-week job. 

To earn around $50,000 per year with Etsy, selling a product around $32 (about the average price), you would have to sell 1,600 units of your product. Right?

Except there are costs associated with those physical products, called “COGS”, or “cost of goods sold”.

Let’s say you were selling jewelry. You hand make the jewelry with stones from your local bead shop, and leather and metals, and maybe you have the leather and metal shipped in.

Each piece of $32 jewelry costs you $6 to make. To hit that average salary of around $50,000, you'd either have to raise your prices by $6, but then risk losing customers or you would have to sell more units.

If you'd earn only $23 per unit, that means you'd have to sell 2,105 units over a course of the year. That's a lot of units on Etsy to have to sell. Especially when considering…

2. The Insane Amount of Labour

This is not a concern for anybody selling vintage on Etsy. If that's your case, please skip this part. 🙂

Etsy is a handmade market. You probably want to sell on Etsy because you want to be able to do what you love, be creative, and earn a living from it.

So if you make your products using the example from number 1, and were somehow able to land 2,105 sales over the course of a year on the uber-competitive Etsy market, you would have to make 2,105 units of the product.

That's 5.7 units per day – let's round up for the sake of covering fees to 6 units per day. If each unit took you one hour to make, that means you'd have to spend 6 hours per day working on making the jewelry.

And then there's the administrative tasks, like interacting with customers and getting sales together.

If you don't have systems in place for your Etsy shop, it can take more time than owning an independent platform.

3. You're Limited to Etsy Clients

Etsy is a great search engine…

Within the platform of Etsy itself.

If you're searching Etsy for handmade leather bags for your mom's birthday gift, you'll find the best listings on Etsy for handmade leather bags. 

However, if you're searching Google for handmade leather bags – which far more people would do – the listings on Etsy will come up at the bottom of the search results on Google (unless you have a very popular Etsy store).

It's much more difficult to rank in Google than it is on Etsy which is why I recommend starting on Etsy.

Make sure you're tagging your items properly. Once you have awesome products to sell, you can optimize your items for search by:

• Using keywords on your item title, item descriptions, tags, and attributes. You can use long-tail keywords in your title. 
• Adding your shop location. 
• Naming your shop sections to boost your shop's SEO.

After you've mastered Etsy, remember that you don't have as much control over your keywords and store presence on Google. 

Plus, people are less likely to click through to an Etsy store because….

4. Etsy Stores are “Less Professional”

I don't know about you, but when I Google something like a handmade leather bag, I am most interested in the listings that don't come from Amazon, eBay, and Etsy.

I'm far more likely to click on an actual store, with its own domain and shop rather than an Etsy listing. That's because the business seems more legitimate, and this is the case for almost all higher priced goods.

A shop with its own domain and website gives me peace of mind because I know they will be there if I ever want to return the product.

Again, the built-in customer base that Etsy has is a huge sell for starting your shop on Etsy. But after you've built your shop to $1k/month in profit or more, you probably want to access the markets of other search engines and platforms.

5. Etsy Pockets a Portion of Your Profit

Imagine you were a shop owner in a mall.

You paid your rent each month to be in the mall, and you played along with the mall's rules and regulations, but at the end of the month, the owner of the mall came to you with his hand outstretched asking for 3.5% of your sales.

That's what Etsy does.

Not only do you pay to “rent” a space at Etsy with every listing you put up (the listing fee is $0.20) but you also have to pay 3.5% off of the top of every sale you make. Then, on top of that, you have to pay if you want to accept credit card payments, you pay currency conversion fees, and PayPal fees too, if you let people check out via PayPal.

The worst part is that you don't even own the “land” so to speak! These are not property taxes we're talking about.

If you were to own your own “shop” rather than rent one from Etsy, you'd lose out on the foot traffic of being in a populated mall, but you'd save yourself a lot of money with listing your items.

When you're first starting on Etsy, this is the price you pay for accessing Etsy's already strong customer base. But as your business grows, it's best to minimize that profit-sharing approach by also opening your shop on your own platform.

6. You Don't Own Your Land

I've compared free hosting (ie www.unsettle.wordpress.com) and paid hosting (www.unsettle.org) to renting vs. owning before, and this analogy fits in nicely here:

When you are on the Etsy platform, you're renting. You don’t have ultimate control over your website. 

Here's why even though you're starting an Etsy shop, it's still better to have your own website:

• You don't own your land. 
• Etsy can “evict” you at any time, and you have to pay a premium for rent.
• You can't do whatever you want with your property. 
• You don't have freedom over what your website looks like and functions. 
• You don't have ultimate control over your business. 

Basically, having an Etsy shop means you have to spend more time and money on the platform. But didn’t you start a business to have more control, flexibility, and freedom of your time, money and life? 

As you grow your business, branching out to include your own self-hosted store will help mitigate this risk.

7. Etsy is a Press-Free Zone

In Episode 5 of the Unsettle Podcast, I sat down with Andreea Ayers to discuss how to get press for your eCommerce products. 

See, press can be a game-changer for any entrepreneur, especially for eCommerce entrepreneurs. Andreea confirmed what I was thinking about sites like Etsy, eBay and Amazon: To get press, you need your own website. You could get press on Etsy. 

Theoretically. It's just much more difficult. If you contact a magazine and they like your products, where would they refer readers to if they featured your products? They couldn't very well include a long URL that starts with Etsy.com. 

Magazine editors and product curators know this, so they don't feature Etsy products as often. This is not usually a concern for those just starting out, but as you're going full-time with your shop, it can be.

8. You Lose Sales When Relying Only on Etsy

Let's go back to the analogy of Etsy as a mall.

For example, when you walk into a mall to look for a pair of shoes, you are bombarded with options. There are several shoe stores, not to mention the department stores which also sell shoes.

With Etsy, it's the same. Buyers land on the homepage of Etsy and they have hundreds of options other than your products. They can easily get distracted by the other options and if they do land in your Etsy shop, Etsy itself has so many options that they likely won't stay there.

There are a bunch of different sellers that sell the same thing, so the very website is competing with you. When I look up my product for instance, I typed in some keywords that I know a lot of people use, and there are twenty different products listed before mine.

It doesn't matter if my product is better than those products. It doesn't matter if the quality is higher or the shipping is faster or if I have better reviews. They still show up in front of my listing.

When you have your own website and somebody lands on your homepage, their only option is to look at your products.

The challenge is just getting people to just your website.

9. Difficulty Up-Selling

In retail, one of the best practices to drive revenue growth is to focus on increasing average order value, through up-selling, or suggesting add-on products. 

If somebody is buying one thing from you, they are easier to sell a second or third item to than somebody who isn't already purchasing. Retailers know this, which is why their websites usually have a section below an item called “You May Also Like”. The section suggests products the customer might also want to buy. 

Etsy doesn't have this functionality. When a potential buyer is looking at your listing, there are no add-on features. You'll want these features to grow your business.

10. Etsy Makes You Turn Your Back on Marketing

Have you ever heard the term “Unique Selling Proposition”? It's one of the core principles of marketing. Your Unique Selling Proposition or USP is what makes you unique and different: why should people buy from you rather than another company?

But the reason why the above point is problematic on Etsy is because it's difficult to communicate your brand or USP through that platform.

When you use the search function to find what you need in Etsy, all you see is a bunch of tiled photographs and listing descriptions.

You don't see the company's specific brand or how they are different. As a seller, you can't even include that information in the listing title, because you need to optimize that for search.

In Etsy, I can't make a choice based on what brand resonates with me. I don't have the ability to see what makes each of these options different, what makes them stand out. All I can go on is price and a picture.

Etsy makes it more difficult for your buyers to, as well.

11. You Can't Communicate With Buyers After The Sale

Have I stressed how important an email list is yet? Ah yes, I believe I have.

Unfortunately, Etsy does not allow you to ask buyers if you can add them to your email list. Meaning you can't communicate with buyers after they buy from you. 

It's far easier to sell to an existing customer than to a new one. Since you've already sold something to your existing customers and assuming that you did an amazing job with their product and they loved it, they are far more likely to want to hear from you and buy again. You can even develop a deeper relationship and trust with your customers through email. 

However, Etsy doesn't allow you to connect with those buyers again through an email list. The money is in the email list, so you're limiting your earnings drastically by relying on Etsy. 

Since relying solely on Etsy to unsettle is such a bad idea, what's the alternative?

What You Can Do Instead

If you're serious about making it with an online store, just relying on starting an Etsy shop is not the answer. It's a GREAT place to start, but it shouldn't be the end-all-be-all.

Starting an Etsy shop has tons of great perks: it’s convenient, you get an audience, and it takes a lot of the pressure of marketing your products especially if you don't even know where to start with marketing!

But after you've grown your Etsy shop to the point where you feel limited by the factors I listed above, there's one thing you can do to help you fix most of these problems.

It's not rocket science. It's not even difficult. But it's something that many people are needlessly daunted by:

Building your own shop.

Create your own website to feature your products.

Sure, you can keep your Etsy shop open. In fact, you should. Etsy is a great search engine and you wouldn't want to lose out on the sales and exposure you get from it.

But host your own shop, too. With your own shop, you can:

• Brand yourself however you want
• Offer add-ons through a plugin
• Get press for your products straight to your website
• List as many products as you want without having to worry about listing and renewal fees
• Market your shop far better than you can with Etsy
• Maintain an email list to be in contact with your customers.

Buyers will take you more seriously, you will enjoy more freedom and flexibility (key for a lifestyle business) and perhaps best of all, you can actually build and maintain important relationships.

Set Up Your Own Website

Don't worry. Setting up your own website isn't as daunting as it sounds. 

It takes 5 minutes to get set up with WordPress, and then all you have to do is find the perfect theme, upload an eCommerce plugin that will allow you to create listings and inventory (like Woocommerce) and start creating those listings.

Or, you can sign up with Shopify and get up and running in a few hours. 

You can't rely on rented space to build a lifestyle business you'll love. If you want to turn that side business into your dream business, your perfect job, and break free into entrepreneurship, relying solely on Etsy is a bad idea.

Let your income from Etsy become just a happy bonus. And start seriously growing your business.